Best Rewards Credit Cards 2013

Best Reward Credit Cards

Spending money is rarely fun but getting a rewards credit card can at least make the process a little less painful. Don't let the pull of "cash back" encourage excess spending, though. Indeed, it's best to treat a credit card like a debit card and forget about spending more than what's in the bank.

Photo by Jjustas/Shutterstock

We selected the following four cash-back credit cards as the best of the current offerings based on several criteria. First, the rewards must be easy to claim, which is why there aren't any airline-specific cards on the list. Aside from the Capital One Venture Rewards card, the best cash-back cards let you redeem for cash or credit towards your monthly statement. That said, rewards are worth more when redeemed for travel (airfare, hotels, rental cars, etc), and that is the recommended approach. Second, there must be a decent sign-up bonus for card holders. There are other good cash-back cards out there, but a $100-$500 initial bonus has a big impact on the overall rewards value. And third, annual fees (if assessed) must be waived for the first year.

Purchases made with the Barclay's Arrival card earn you miles that can be used to pay off transactions. When putting the miles toward travel-related transactions, every dollar spent on this card earns 2.2 percent in return, making it one of the best cash-back cards on the market.

Signup Bonus:

40,000 miles after spending $1,000 within three months

Bonus Value:

$200 in statement credit; $440 if used for travel spending

Earnings:

1-2.2 percent back for every dollar spent

Fee:

$89/year; first year waived

Other Perks:

10 percent of miles redeemed for travel or 10 percent bonus on cash back.

Bonus Value:

Earnings:

Fee:

Other Perks:

Cash back from Chase comes in the form of Ultimate Rewards points redeemable for cash, prizes, and gift cards, and to book travel through Chase's website. A bonus for booking travel with points nets up to 2.675 percent cash back when the card is used for dining or travel-related services.

This no-fee card is a hassle-free vehicle for earning cash back on every purchase. Every quarter the Freedom card also generates 5 percent cash back on select spending categories.

Signup Bonus:

10,000 Ultimate Rewards points after spending $1,500 within three months

Bonus Value:

$400 in cash or gift cards; $500 if used for booking travel

Earnings:

1-5 percent back for every dollar spent

Fee:

$0

Other Perks:

5 percent bonus on rotating categories

When applying for a new credit card the financial institution looks into your credit history and credit score in what is called a "hard inquiry." This can result in a small (three to five points) drop in your credit score. However, the score will soon return to normal and may even slowly climb as the "utilization rate" goes down. In other words, if a card has a limit of $1,000 and you spend $500, say, the utilization rate is 50 percent; after opening a second card with a $1,000 limit, the overall utilization rate drops to 25 percent. Lower utilization rates can help improve your credit score. A test conducted by CreditKarma analyzed 70,000 credit scores and found the ideal utilization rate to be between zero and 20 percent; the site recommends never exceeding 30 percent.

Rewards credit cards generally have a higher APR than other cards. If you know you're going to be spending more than you can pay off by the due date, which is never advised but sometimes happens, avoid doing so on a rewards card.

A Final tip. If a rewards card imposes an annual fee it will probably be waived for the first year. Set a calendar notice for 11 months after the card is activated. When the time comes, call the bank and explain that while the card gets used often and is well liked, the perks aren't worth the fee at the moment. Sometimes the bank will waive the fee or offer other incentives to keep the account open. If the bank won't budge (the Chase Sapphire Preferred card, for example, has a reputation for rarely waiving the fee), ask if there's a no-fee version of the same card. Often, the no-fee version comes with fewer benefits but the account remains open, which helps build credit history, another factor in your credit score.

Sign-up bonuses for these cards vary. The Chase Freedom card, for example, has offered new applicants as much as $300 in the past. It may be best to hold off an applying until similar deals emerge.